Canada Life has unveiled a new range of equity release products, giving borrowers the option to make overpayments - a feature advisers say many other lenders don’t currently offer.
As well as letting borrowers’ interest roll-up on the loan, it will now allow them to make overpayments of up to 10 per cent of the initial loan amount each year.
This amount will be exempt from early repayment charges, with any amount over this cap subject to charges in the first eight years.
Like the lender’s lifetime mortgages, this new range - named ‘Lifestyle Select Options’ - comes with optional inheritance guarantee protection and a no negative equity guarantee.
“In short, we find that customers enjoy the peace of mind that overpayment can provide,” a spokesperson from Canada Life told FTAdviser.
“The reasons for this are similar to overpaying the minimum payments on a standard mortgage. Customers might have spare money month to month or receive a lump sum payment eg. a work bonus, and decide to pay that towards the loan and reduce the potential impact of interest roll-up.”
With UK house prices continuing to climb, the amount of equity adults can unlock from their properties has gone up £13,213.80 in just two years.
Over 55s can release up to 60 per cent of their home’s equity - depending on their circumstances. In the last year, an increasing number of parents have released equity to help their children get on the property ladder - fuelled by the stamp duty tax break.
The increasing demand for equity release products has spurred a record number to hit the shelves. But some advisers are skeptical of the features these products offer.
Ellen Roome, director of mortgage and insurance provider The Finance Roome, told FTAdviser: “The ability to overpay is something other lenders don’t have. But I’m struggling to think of a client who would want to make an overpayment. Usually someone is desperate for cash if they want this product.”
Other advisers disagree, highlighting the more sophisticated use cases for equity release which are emerging.
“Canada Life has not designed its new range as a bridging facility. Nonetheless, it shows our market continuing to develop more sophisticated approaches to customers’ needs,” said Jan Johnson, 55 Plus Equity Release’s director.
“The market is adapting to equity release - which is now becoming mainstream - and this is another instance. Clients like the freedom to repay their loans in a reasonable period with as few penalties as possible.”
Whilst historic perceptions of equity release have been retirees unlocking equity to go on a cruise, more important financial reasons - such as inheritance tax planning, or getting your child on the property ladder - are beginning to emerge.
Canada Life is therefore attempting to overcome this by repositioning equity release as a retirement option.
ruby.hinchliffe@ft.com
